Finding the Best Loan Program for Your Specific Needs

Finding the Best Loan Program for Your Specific Needs

A Lid for Every Pot!

Guest Post by Tim Britt

Last month I talked about Affordable mortgage programs.  In an earlier article, I mused that there isn’t a “one-size-fits-all” mortgage program…and began a dialogue about three categories of mortgages:  Affordable, Specialty, and Traditional.  This month – we’ll tackle the Traditional Mortgage Programs and discuss their features and benefits, as well as the typical clientele for them.

Traditional Mortgages are loan programs that typically appeal to borrowers with established credit, with loans that offer both fixed and adjustable rates and terms.

The potential clients for Traditional Mortgages are those who can afford relatively larger down payments (> 5%) and have higher credit scores (FICO > 700).  The overall benefits include allowing a borrower to choose from a variety of options, from short-term ARMs (Adjustable-Rate Mortgages) to 30-year fixed rates and just about anything in between.  Interest rates and overall loan costs are often lower, (although not universally).

Traditional mortgages can be subdivided into 2 specific categories:

  • Conforming Loans – which conform to Fannie Mae (FNMA) or Freddie Mac (FHLMC) lending guidelines.
  • Non-Conforming Loans – which typically have loan amounts above the limits set forth by FNMA and FHLMC. These are also referred to as Jumbo

Conforming and Non-Conforming Loans fall under the Conventional loan classification…meaning that they are not backed by a government agency (as is the case with VA, FHA, and USDA Loans).  The main difference, however, lies in how these loans are securitized.  All Conforming Loans are securitized by either FNMA or FHLMC.  This basically means that lenders who originate these loans are re-capitalized by these agencies so that they can continue to originate new loans to maintain a robust housing economy.  The actual mortgages are bundled into Mortgage-Backed Securities (MBS) and used as investment instruments in the market.  When you hear the phrase “my loan got sold;” the element that is actually sold is the servicing, or the collection of the payment, rather than the loan itself.

Non-Conforming loans, however, are typically referred to as Portfolio products.  These loans are securitized by either the bank who originates them or a bank/investor who purchases them from the originator.  While the lending guidelines may mirror those of Conforming Loans, these products do not fall under the auspices of FNMA or FHLMC.

As mentioned above, the differentiator between Conforming and Non-Conforming is the Loan Amount.  Conforming loan amounts are established annually by the Federal Housing Finance Authority, and are adjusted geographically.  Areas with higher cost-of-living indices and higher housing prices have higher Conforming Loan Limits.

When the Loan Amount exceeds that limit, the Non-Conforming/Jumbo Loan Product is the available avenue for financing a home purchase.  I often refer to these as “boutique” loans, because there are many variations of them in the marketplace today, depending on the specific lender.  Each lender or investor is able to establish their own Credit, Income, and Asset guidelines for these loans based on their particular business or risk-tolerance model, although as I mentioned, many of them mirror the FNMA or FHLMC guidelines.

So – where do you start?

While there certainly isn’t a single loan program that fits every need, there is usually one that will best fit your specific needs…or, “a lid for every pot!”  If you feel like a Traditional Mortgage Program may best fit your needs – give me a call and I’ll be happy to sit down with you and discuss the features and benefits of each, and help you choose the one that may be best-suited for your particular situation.

 

 

 

Tim Britt is a Senior Mortgage Loan Officer (NMLS 1369718) with Fifth Third Bank in Franklin, TN.  He can be reached at 615-415-8887 or [email protected].  The statements or opinions expressed are Tim’s own and do not necessarily represent those of Fifth Third Bank. window.dojoRequire([“mojo/signup-forms/Loader”], function(L) { L.start({“baseUrl”:”mc.us13.list-manage.com”,”uuid”:”b3560441a030ec3ce9b8bfb77″,”lid”:”4f35c52094″,”uniqueMethods”:true}) })

How to Save Thousands of Dollars in Interest on Your Mortgage

How to Save Thousands of Dollars in Interest on Your Mortgage

One of the most common loans you can get to buy a home is a 30-year fixed rate mortgage. If the thought of paying for your home over the course of 30-years seems daunting, here are some easy ways to shorten that term which will actually end up saving you money over the life of your loan.

Any additional payments to the principal amount (the original sum of money borrowed in a loan), helps to cut down the amount of interest that you will pay over the life of your loan and can also help to shave years off the loan as well.

When you make ‘extra’ payments toward your loan, the key is to let your lender/bank know that you want the extra funds to go toward your principal balance as they will not automatically do this for you.

You don’t have to double your mortgage payment to make a big difference either!

If you have a 30-year mortgage on a median-priced home ($250,000) with a 5% interest rate, you’ll be responsible for a $1,342.05 monthly principal and interest payment. Over the course of the loan, if you pay your exact monthly payment, you will have paid $233,133.89 in interest alone!

Paying a Little Extra Can Pay Off Big

1. Pay an additional 1/12th of your mortgage payment every month

Benefit: In the example above, adding $111.84 to your monthly mortgage payment might not seem like a lot, but each year you will have paid one extra month’s worth of payments which will shorten the term of your loan by 4 years and 8 months, all while saving you $42,000 in interest!

2. Pay an additional $50 per month towards your mortgage

Benefit: Fifty dollars might not seem like enough to make a difference on the term of your loan, but that small amount will save you over $21,000 in interest and will take over 2 years off the end of your loan. Twenty-eight years from now, you’ll be happy to pay off your loan that much sooner!

3. Make one-time lump sum payments when you can

Benefit: If you find yourself with a little extra money after a yearly bonus, a tax return, or from investment dividends, paying that money towards the principal can cut your costs. This option, however, is less predictable than the extra monthly payments.

If you have higher interest debts, like credit cards, consider using any extra funds you have to pay those debts down before applying that money towards your mortgage. Also, if you do not plan on staying in your home for more than 10 years, paying extra toward your mortgage might not make sense.

Bottom Line

If you’re wondering what strategies would work best for you to shorten the term of your loan, let’s get together to answer your questions.

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The Mystery of the Credit Score… Part 2!

The Mystery of the Credit Score… Part 2!

The Mystery of the Credit Score… Part 2!

Guest Post by Tim Britt

Last month, we began the conversation about Credit by discussing the Mystery of the Credit Score.  As I mentioned, the numerical score is only half of the story!  This month, we’ll talk about, as Paul Harvey would say “…the rest of the story!”

In addition to the score, a borrower’s Credit History can also be a determining factor in qualifying for a particular home loan program, or if they qualify at all.  When a credit report is generated, the borrower’s history of credit usage is reflected on that report.  Keep in mind that this history may continue to report for up to 10 years or more.  This history includes:

  • Credit Accounts (open or closed)
  • Date(s) accounts were established
  • Last Activity Date
  • Credit Limit/Balance/Minimum Payment
  • History of Late Payments
  • Public/Private Liens or Judgements
  • Bankruptcy/Foreclosure/Short Sale
  • Any Accounts in Collection (past or present)

The numerical score is the first indicator of qualification for a mortgage loan, however; certain derogatory events may disqualify a borrower whose score otherwise meets the minimum requirements for a particular program.  The severity and timing of these events will determine how they impact qualification.  Here are a few examples that may preclude qualification for someone who may otherwise meet the minimum numerical score guidelines.

  • Housing Payment History: Some loan programs (e.g. Conventional) will not allow any housing-related late payments (mortgage or rent 30 days late or more) within the last 12 months.
  • Revolving Charge: Accounts with late payments more than 60 days late, or in some cases, a single account with a 30-day past due can be disqualifying.

Other Examples Include:

  • Nonpayment of Child Support
  • Bankruptcy
  • IRS Tax Liens
  • Public Judgements
  • Foreclosure, Pre-Foreclosure, Short Sale, or Deed-in-Lieu Actions
  • Open or Closed Collection Accounts
  • Delinquent Student Loan Accounts

While the above list is not all-encompassing, there are many cases where a client may have a qualifying score for a particular loan program, but one or more of these derogatory events will preclude mortgage approval.  Not to worry, though…it’s not a life sentence!

In most, if not all cases, there are either “waiting periods” or rehabilitation plans whereby a potential borrower can remedy the disqualifying event and eventually put them into a position to qualify and purchase in the future.   In some instances…Bankruptcy, for example:  simply shifting loan programs from Conventional to FHA may reduce the waiting period and possibly allow for qualification.  With IRS Tax Liens, establishing a payment plan and making the first payment may satisfy that requirement.

In many instances, clients aren’t even aware of derogatory information on their credit report until they apply for a mortgage.  It’s this reason that I encourage everyone, once a year, to get a free copy of your credit report from www.annualcreditreport.com.  This site is jointly owned by all 3 of the major credit bureaus, and is the only source of information authorized by Federal Law.  While this report will not produce your numerical score for mortgage qualification, it will provide all historical information reported to the credit bureaus and enable you to ensure you’re not a victim of fraud, identity theft, or errant reporting by a creditor.  It will also reflect any public information (liens, judgements, etc.) reported by other agencies or municipalities to the bureaus.

To wrap up this topic – think of your credit history as one of your most important assets!  The information contained therein can be of tremendous value, or detriment…not only for mortgage qualification, but in some cases, even for future employment.  Know where you stand, and protect yourself by knowing your credit history!

Tim Britt Supreme Lending

 

 

Tim Britt is a Senior Mortgage Loan Officer (NMLS 1369718) with Fifth Third Bank in Brentwood, TN. He can be reached at 615-415-8887 or [email protected].

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25% of Homes with a Mortgage are Now Equity Rich!

25% of Homes with a Mortgage are Now Equity Rich!

Rising home prices have been in the news a lot lately and much of the focus has been on whether home prices are accelerating too quickly, as well as how sustainable the growth in prices really is. One of the often-overlooked benefits of rising prices, however, is the impact that they have on a homeowner’s equity position.

Home equity is defined as the difference between the home’s fair market value and the outstanding balance of all liens (loans) on the property. While homeowners pay down their mortgages, the amount of equity they have in their homes climbs each time the value of their homes go up!

According to the latest Equity Report from ATTOM Data Solutions, “13.9 million U.S. properties in Q2 2018 were equity rich — where the combined estimated balance of loans secured by the property was 50 percent or less of the property’s estimated market value — representing 24.9% of all U.S. properties with a mortgage.”

This means that nearly a quarter of Americans who have a mortgage would be able to sell their homes and have a significant down payment toward their next home. Many who sell could also use their new-found equity to pay off high-interest credit cards or help children with tuition costs.

The map below shows the percentage of properties with a mortgage in each state that were equity rich in Q2 2018.

Bottom Line

If you are a homeowner looking to take advantage of your home equity by moving up to your dream home, let’s get together to discuss your options!

Questions to Ask When Choosing Your Lender

Questions to Ask When Choosing Your Lender

Our goal is not simply to walk our clients blindly through their real estate transactions and collect payment at closing; it would be a disservice if we did not educate them along the way and equip each of our clients to make well-informed decisions throughout the process, from choosing the right professionals to finding the right properties. In many cases, especially with first-time homebuyers, the client may not know what to ask or what the answers mean for them. Tim Britt is one of the lenders we work with frequently and explains below what you should ask when choosing your lender and how a lower interest rate may actually end up costing you more!

What’s Your Rate?

Guest Post by Tim Britt

A couple of months ago, I wrote about the trend toward rising mortgage interest rates. “Five is the New Four!” is the phrase I coined! So, here we are 2 months later and, much to the chagrin of everyone in the housing industry… the trend continues. As unfortunate as this may be for would-be homebuyers, it presents us with a great opportunity to discuss all of the costs associated with obtaining a home mortgage.

I often joke that many consumers only know one question to ask a lender… “What’s Your Interest Rate? As much as I hate to admit it… there’s a lot of truth to that statement. The unfortunate result of that dialogue is that the consumer often makes their loan product and lender decision based on the answer to that question… without asking the better question. So… what is the better question? Well… let’s talk about it!

There are three costs a buyer incurs when obtaining a mortgage:

  • Down Payment –the amount paid in cash when, subtracted from the purchase price, is used to arrive at the loan amount.
  • Pre-Paid Expenses – costs required to be paid at closing, in advance of their due date (e.g. pre-paid interest, 1st years’ homeowner’s insurance premium, escrow account deposits)
  • Closing Costs – these are the fees and costs associated with originating and closing the loan. This includes title expenses, appraisal costs, government taxes and recording fees… and the Lender Fees. These Lender Fees are the ones I want to focus on this month.

Within the “Closing Cost” category on the Loan Estimate, the Loan Costs are contained. These fees include the administrative cost the lender charges to process, underwrite, and close the loan. This can also include things like application fees, credit checks and so on. Some lenders charge a flat fee for these services, while others will charge a percentage of the loan amount. The other cost that shows up in that section of the Loan Estimate is the origination cost, or the discount points… basically, the cost (or credit in some cases) to obtain the interest rate quoted.

By law, if a lender charges a fee (discount points) for the interest rate quoted, they must disclose the amount in the Loan Estimate. This cost is represented as a percentage of the loan amount and disclosed as points, or discount points. It’s important to separate this charge from the lender’s administrative costs, so that a consumer can evaluate whether or not paying for an interest rate makes financial sense for them. To illustrate… consider this example for a $250,000 loan:

Discount Point Breakdown for Mortgage Interest Rate and Monthly Payments, Nashville Real Estate

The question to ask – does it make sense to invest $2,813 in additional closing costs, to reduce your monthly payment by $38/month…if it takes over 6 years to recover that investment?

For some…maybe it does. For me personally, it’s not a good investment. BUT – when one lender quotes 4.625%, and another lender quotes 4.875% (without disclosing the cost – if any – for that rate), most consumers will gravitate toward the lower rate because the inference is that they’re “saving money”. However, without knowing the cost to obtain that rate, it’s impossible to make an informed decision on whether or not that rate actually makes financial sense for the consumer.

The better question is: What is your interest rate for my loan profile today with NO Discount Points?

That information, along with a Lender’s administrative fees, will help the consumer make a more informed choice… and ultimately enable them to choose the best lender and mortgage product for their financial needs.

Mortgage Loan Officer Nashville TN

 

 

Tim Britt is a Senior Mortgage Loan Officer (NMLS 1369718) with Fifth Third Bank in Brentwood, TN. He can be reached at 615-415-8887 or [email protected].

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